For this fruit company, it’s all about the niche

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CAPITAL PRESS – DAN WHEAT – ORONDO, Wash. — Ninety years ago, the Auvil brothers, Grady, Robert and David, bought 22 acres in this community north of Wenatchee, and began living their dream of owning and operating an orchard.

They cleared sage brush and rocks and planted apple, apricot and pear trees. By 1940, they owned 40 acres. A year later, they were the first to establish Red Haven peaches in the Pacific Northwest.

They kept expanding. Grady Auvil became famous within the Northwest tree fruit industry as a visionary and innovator. Growers looked to him for horticultural tips and which varieties to plant next. He became a tree fruit leader and by the end of his life was regarded as an industry giant.

Now, 20 years after Grady Auvil’s death, the company he started remains comparatively small and is resisting the industry trend of rapid growth or merging with another company to survive the pressures of labor shortages, escalating labor costs and more government regulations. Other companies of similar size have not been as fortunate. Two to the north, Gold Digger Apples in Oroville, and Smith & Nelson in Tonasket, are gone.

The Auvil answer is slow growth and keeping its niche as a provider of premium fruit for which it can charge a little more.

But Chris McCarthy, a certified public accountant who became Auvil’s CEO a few years ago, says the company doesn’t have a magic formula.

“Every day is a different business challenge and you have to figure out how to survive,” McCarthy said. “We’re not like a tech company that has money pouring in. We’re a very capital-intensive business and fight for every bit of margin we can.”

They also seek divine help.

A notebook containing employee prayer requests sits on the front counter in the main office, and early each morning top managers meet and pray for those requests.

“He went to Washington State University and didn’t graduate. He was so forward-looking that he felt his teachers were behind the times and he was not going to waste his time listening to them,” Geraldine Warner, now retired editor of Good Fruit Grower magazine, said in a 2012 documentary video, “Gee Whiz: The Apples of Grady Auvil,” by Howell at the Moon Productions, Wenatchee.

Auvil returned home and went to work on the orchard he and his brothers started in 1928. They barely survived the Great Depression, hawking apples on the streets of Seattle to bring in money.

Following the success of Red Haven peaches, Auvil was first in the region to grow Red Gold nectarines, Granny Smith apples, an early Fuji apple that he discovered in his orchard and was the first to reduce harvest bruising of Rainier cherries enough to successfully market them.

“Grady was the first to introduce high-density apple plantings in the U.S., using a Tatura V-trellis system from Italy,” said Ray Norwood, Auvil Fruit Co. director of sales and marketing.

Dwarfing rootstock is planted close together for small trees. Training limbs along V-trellis wires allows greater penetration of light to apples, greater airflow and reduces unnecessary limb growth. It results in greater yields.

Auvil introduced grass cover between orchard rows to hold soil moisture, the versatile M26 rootstock and experimented with bagging Fuji apples while they were still on the tree to achieve a pinkish color.

He co-founded the Washington Tree Fruit Research Commission in 1968.

He began using shade cloth in 1994 and found it quickly paid off in higher quality fruit and increased packouts, Norwood said.

“His most favorite part about what he did was he loved to get his hands on new things and tinker,” his grandson, Grady Todd Auvil, said in the documentary.

Perhaps the single largest scientific breakthrough, to which Auvil contributed, was Controlled Atmosphere storage. His $100,000 gift to Washington State University in the early 1980s propelled the research. Controlling the atmosphere to slow respiration of apples in storage slowed their ripening, maintaining quality longer for year-round sales.

Auvil’s enthusiasm was reflected in his “Gee Whiz” brand.

Early on, Auvil commented that apples didn’t taste as good as the boxes in which they were shipped. Good flavor became his passion. Auvil honed his horticultural practices to achieve it. When customers exclaimed, “Gee Whiz! That’s a good piece of fruit!” that became the brand.

His fixation with constant improvement challenged his employees and the industry. He shared his knowledge openly and gave a lot to his community, education and the industry. His estate gave $2.9 million for college agriculture programs.

Shortly before his death at age 93 in 1998, he received the state Medal of Merit award from Washington Gov. Gary Locke and the Legislature.

In the mid-1980s, Auvil began including key employees in ownership of the company. Today 17 employees are stockholders. None of of them are family members.

Jim Wright, married to Auvil’s granddaughter, was the last family member to head the company. Auvil’s youngest son, John Auvil, was the last to work for the company, retiring in July 2015 and dying two months later.

Flavor key

While the half-dozen or so largest tree fruit companies in Central Washington each operate on about 10,000 acres of orchard and grow more than 20 million boxes of fruit each year, Auvil Fruit Co. has 2,800 acres and produces, packs and sells 2 million boxes of apples and 100,000 boxes of cherries. It operates with 300 year-round employees and hires nearly 300 temporary workers at peak harvest. All are domestic.

The cost of labor, mechanization and the growth of government regulations all challenge the industry. As some small companies have gone under and others have rapidly grown to survive, the Auvil Fruit Co.’s solution is slow growth and focusing on quality and taste.

“Our passion is delivering consistently higher quality, good, flavorful fruit. We never compromise this goal. Our motto is: Where Passion Meets Flavor,” Norwood, the sales and marketing director, said.

Keys to that include growing on the V-trellis for maximum light penetration and airflow and use of shade cloth to prevent sunburn and wind, hail and bird damage. The company has heavily invested in shade cloth, covering about 70 percent of its orchard acreage.

Hand blossom thinning and fruit thinning are used to achieve optimal sizing and tonnage. Water and nutrients are precisely managed. Orchards are picked up to three times for proper maturity for the best flavor and, secondarily, color and size.

“Another advantage we have is we are our only farmer. Where other companies pack fruit from hundreds of growers with various horticultural techniques, we pack only the fruit we grow and use the same techniques on all our ranches, which gives us a more consistent product,” Norwood said.

Auvil Fruit Co. is one of a few or maybe the only company in the state to grow, store, pack and sell only its own fruit, other than its limited seasonal imports. Most small companies contract their sales through larger companies or also pack the fruit of other growers.

Norwood is chief of five people on the sales desk. He and three others handle domestic sales. One handles exports.

“What we like about it is we control our own fate,” he said. “We grow the fruit, we hopefully pack the correct fruit at the correct time and we keep in-house control on pricing.”

The company has a core group of mostly high-end retailers that it works with. Norwood said he is always on the lookout for new ones whether on a marketing trip or on a vacation.

Export sales

Up to four years ago, selling Fuji apples to Taiwan was a big part of the company’s business. That changed largely because of the 2014-15 labor slowdown at West Coast seaports, when few apples were shipped. Companies, including Auvil, lost overseas market share.

“We’ve worked hard to develop a more domestic following,” Norwood said.

Washington companies normally export about 30 percent of their apples. It will be less this year because of a smaller crop.

“We’re not exporting nearly as much as we normally would and going a much higher percentage domestic, like 90 percent,” Norwood said. “There’s less risk with domestic sales.”

Auvil Fruit Co. exports 80 percent of the sweet cherries it grows for premium prices. When China slapped tariffs on U.S. fruit in retaliation to Trump administration tariffs, Auvil Fruit felt it, in a big way.

“It was a very big hit. I don’t want to say a dollar loss, but it was a 20 percent decrease in price and volume,” Norwood said at the time.

The company ended up diverting China-bound cherries to Taiwan and selling more domestically at lower prices.

Chinese tariffs remain a big concern, Norwood said. The company is seeing a “significant reduction” in apple sales to China but is successfully diverting product to other countries, he said.

Like many other Washington fruit companies. Auvil imports Southern Hemisphere apples in mid-spring to supplement and maintain shelf space with domestic retailers.

“We work with a family-owned company in New Zealand that mirrors Auvil in many ways in terms of high quality standards for flavor and grade,” Norwood said.

Trend-setter

While Auvil Fruit Co. has a rich history of setting industry trends it isn’t quick to follow other trends.

“We do not currently farm any orchards organically. We haven’t felt that’s our niche to get into,” Norwood said.

The return on organics has been dropping as more people grow them.

It’s more expensive to grow organics and “typically packouts are lower. You deal with more bitter pit,” Norwood said.

While many growers rush to plant Washington State University’s new Cosmic Crisp apple, seen as the next Honeycrisp in popularity, Auvil Fruit is staying away.

“When you introduce a new apple it has to take another apple’s place. Retailers normally don’t increase their space,” Norwood said. “We are looking at other new varieties right now with planting and taste tests, but want to be extremely careful in how we invest.”

The company grows Fuji, Granny Smith, Honeycrisp, Gala and Pink Lady apples and Rainier, Bing and Cristalina cherries.

The industry has long experimented with orchard automation to save labor costs.

In 2005, Auvil Fruit was the first to use motorized picking platforms to replace ladders but stopped several years ago because pickers didn’t like them.

“On piece-rate pay, fast pickers can make more money at their own speed with ladders than being slowed down by the slowest person on a platform,” McCarthy, the company CEO, said.

Like most companies, Auvil Fruit is interested in development of a robotic picker. Abundant Robotics, Hayward, Calif., has tested its prototype in Auvil orchards.

So far, the V-trellis system is a problem because the robot can’t access the back side of the fruiting area. That will be solved as the technology develops, McCarthy said.

Auvil Fruit took advantage of new apple packing technology two years ago by investing in a New Zealand Compac Spectrim defect sorter and sizer. It also added more Controlled Atmosphere storage.

H-2A, piece rate

Another industry trend Auvil Fruit has not followed is use of H-2A-visa foreign guestworkers. It’s costly because the grower has to provide housing, transportation from and back to the country of origin and the minimum wage is higher than the state minimum wage.

“The number of larger growers hiring H-2A has created relief for smaller growers. The domestic labor pool isn’t strained so much,” McCarthy said. “So, knock on wood, we’ve been able to negotiate the landscape without H-2A. At the moment, we have no plans to do H-2A.”

Employers who use H-2A have to pay their domestic workers the same $14.12 hourly minimum that they pay H-2A workers. It is expected to be $15.03 next year in Washington and Oregon.

A short labor supply and a state Supreme Court ruling on piece rate pay all contribute to escalating labor costs, McCarthy said.

Auvil Fruit was a party in the piece rate lawsuit, but settled and McCarthy is prohibited from speaking about specifics.

Growers like piece rate, which is based on the amount of fruit picked, versus hourly because it’s an incentive for pickers to work fast. Pickers like it because they can make more money.

The Supreme Court ruling left an uncertainty over piece rate and the industry is shifting to hourly pay with some growers offering bonuses based on amounts picked. Others are sticking with piece rate.

For now, Auvil Fruit is staying its course of slow growth of a premium product. But that model isn’t carved in stone.

“We along with everyone else in the industry are taking a hard look at farming and how does that look five to 10 years from now,” McCarthy said. “So nothing is off the table.”

Posted by: DAN WHEAT Capital Press December 13, 2018

Picture: Dan Wheat – Capital Press – Ray Norwood – Auvil Fruit Co.